Friday, August 22, 2014

What Keeps People in Poverty

I have observed that in the current general election campaign in New Zealand there has already been much of the usual commentary about 'child poverty'. The phrase is meaningless because minors cannot have legal title to assets and therefore can't really be rich or poor. What the politicians and commentators really mean is parental poverty.

I have been interested in seeing whether there is anything new in the election commentary about poverty and came across this article by Kate Tindall on the Tindall Foundation's website. The Foundation was established by New Zealand businessman Stephen Tindall and his family and engages in charitable activities. The article quotes the Auckland City Mission on the factors it thinks keeps people in poverty and while I agree the factors exacerbate the difficulties of people in poverty, I think they are symptoms rather than causes and I disagree with most of the proposed solutions.

The Mission blames 'fringe lenders' for keeping poor people poor, as if lenders somehow press-ganged their customers into borrowing, and a 'poverty premium' in the form of higher interest rates. Anyone who knows anything about the finance industry knows that interest rates are proportional to risk. I can borrow at very low interest rates because I have never not paid back a loan. I am sure many of the Auckland City Mission's clients pay much higher interest rates (if they can get anyone to lend to them at all) because either they have a track record of not paying the money back, or no track record at all. The solution, according to the Mission, is to cap the interest rates charged by all lenders. Of course the outcome of this is that no one will lend to these people at all - why would they when they can't get a sufficient return to cover the losses on the default loans?

The Mission talks about the serious impact of having a family member in prison, as if this situation was merely an unfortunate accident rather than the result of the criminal activities of the family member in question. Somewhere, some other family is living with the consequences of that person's criminal action - perhaps the loss of a primary breadwinner with the result that the victim's family in now in poverty through no fault of their own. The Mission talks about making more use of the Clean Slate Act, as if state-sanctioned lying about someone's criminal activity is going to make everything better.

The Mission calls for 'a minimum standard for all rental accommodation' including private rentals. This is similar to the cap on interest rates. Putting additional compliance costs on private landlords is not going to magically create better, less-expensive housing - rather it will push up rentals and discourage property owners from renting out their properties at all.

The Mission calls for 'tougher monitoring' of casual employment and legislated increases in minimal wages. Again, the obvious effect will be the exact opposite of that intended as employers will be discouraged from hiring the very people the Mission claims to care about - the least skilled and qualified - with the consequence that they will be denied a very real opportunity of gaining work experience and improving their lot.

Dental Care
Dental care is already free or heavily subsidised for school children and there are welfare grants available to low income people to pay dental bills. The reality is that dental care is not cheap and the higher taxes that will be required to pay for increased state-provided dental care will mean taxpayers will be less able to provide for their own dental bills.

The Mission says its clients struggle to provide school lunches to their children. I suspect that in many cases the problem is not that the money is not available at all but rather that money spent on school lunches is regarded as discretionary and a lower priority than competing adult 'needs' such as beer, cigarettes and poker machines. I imagine another problem is that many low income people simply do not know how to make a cheap nutritious lunch such as sandwiches and a piece of fruit and instead give their children cash (when they can afford it) for fast food - hardly a cheap or nutritious choice.

This is probably the one area where the concerns expressed and proposed solutions are valid. Negotiating government services is labyrinthine, particularly for those who have to deal with government a lot. To their credit, MSD is doing much to try and simplify and improve their services, but more certainly needs to be done.

Finally, the Mission says that 'course providers who receive government subsidies must guarantee sustainable employment outcomes.' This is probably the craziest of all their solutions. How on earth can an education provider possibly guarantee employment for their graduates? If this were to be enforced, it would force education providers out of business.

It might seem from my comments above that I am unsympathetic to the plight of the poor. That is not the case. There was a time in my life when I was down to my last few dollars and was genuinely unsure of where my next meal would come from or where I would spend the night. I just don't think that the ill-conceived and clearly illogical policies advocated by the Auckland City Mission are likely to have any real impact on poverty in this country. There is only one real solution to poverty and I would have thought Stephen Tindall and his family would know what it is - a vibrant and growing economy that creates demand for labour and thereby increases employment and wages and salaries. It is only by creating greater prosperity through economic growth that we will provide opportunities for the unskilled and unemployed to improve their lot.

The Auckland City Mission needs to think about what conditions are required to create a vibrant and growing economy and to support policies that will achieve this. Stephen Tindall knows what these conditions are because he (and his many thousands of employees and suppliers) benefited from them during the period of greatest growth of his retail empire during the 1980s and 1990s - deregulation, low taxes and minimal government involvement in the economy. 

At best the solutions proposed by the Auckland City Mission are Bandaids, at worst they will make the problem worse.

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